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The bankruptcy of Chrysler is a big black eye for Cerberus Capital Management, and its significance to the US economy is difficult to overstate. But looking at this deal strictly from the perspective of the returns of the private equity fund that invested, Chrysler won't go down as the worst deal in history—and here's why.

Cerberus' total equity exposure to Chrysler is in the neighborhood of $1.2bn (€906m), according to a person familiar with the matter, and it has lost the bulk of that.

(At the time of the original deal, Cerberus had said it was investing $7.4bn, but much of that was from co-investors.)

It has also lost about $500m of second-lien loans, which came from its lending arm Madeleine.

That's pretty bad, but one thing helping the Cerberus private equity fund that did the deal—Cerberus Institutional Partners LP Series IV—is that it provided less than half of the total equity, according to another person familiar with the matter. The rest came from hedge funds, this person said.

Another thing helping the fund is that Cerberus took more than a year-and-a-half to lose this money, since its purchase of Chrysler closed in August of 2007. That may not seem like it should matter—lost capital is lost capital—but it does in the odd world of private equity net internal rates of return, which are calculated based on a number of factors, one of which is the time a fund is invested in a company.

So, this fund's IRR won't take as bad a hit as, for example, the one taken by the various TPG Capital LP funds that invested $1.35bn in Washington Mutual, a deal that went up in smoke in just five months last year.

Also mitigating the pain somewhat for limited partners in Cerberus' private equity funds: while Chrysler is in bankruptcy, its holding company remains outside of it. That holding company controls such assets as Chrysler Financial. As part of the restructuring, Chrysler Financial has entered into an agreement with GMAC Financial Services—which Cerberus also owns a stake in—whereby GMAC will provide financing to Chrysler’s dealers and customers with support from the federal government.

Not that that deal is looking so great for Cerberus, either, as GMAC has taken federal bailout money, diluting Cerberus’ stake. But at least there is still some hope.

For comparison's sake, Cerberus Institutional Partners LP Series IV was generating an IRR of negative 17.8% as of Sept. 30, according to California State Teachers' Retirement System. TPG Partners V LP, one of the TPG capital funds that invested in WaMu, was generating an IRR of negative 13.7%.